MONTREAL, Aug. 19 /CNW Telbec/ - Marc Bertrand, President and CEO of MEGA
Brands Inc. (TSX: MB), made the following statement today during a conference
call with the financial community for the financial results for the second
quarter and six-month periods ended June 30, 2008.
"We are pleased to report that we have completed the $75 million
financing announced last week.
The proceeds will allow us to operate in the normal course as we gear up
for the peak toy selling season. I know this is welcome news for our
suppliers, our customers and our employees.
We are very aware that many of our current shareholders are not happy
with the dilution of their ownership as a result of this financing. However,
given the deterioration of our liquidity position, I can say without
reservation that this was the best alternative.
As part of the financing, our lenders have also agreed to important
changes to our credit facilities. These changes, combined with the $75 million
of new money, provide us with significant financial resources and with greater
flexibility to implement our Value Enhancement Plan, restore the company to
profitability and build our future.
We have achieved several milestones in the Value Enhancement Plan.
- Actions already taken will generate $12 million in annualized cost
savings beginning in the third quarter.
- We have put in place many new processes to improve the efficiency of
our supply chain and have completed a thorough review of our sourcing
- And we have positioned the company to achieve better margins through
value engineering, price adjustments and improved product mix.
The sale of the Stationery and Activities business is following its normal
course. Since we are in the peak selling season for these product categories,
the prospective buyers want to understand our most up-to-date results and the
most complete information about the industry trend for the back-to-school
Turning now to the second quarter results, our sales were down by
15 million dollars compared to last year. Two-thirds of the decline was in the
Boys 5-plus category, offsetting the continued strong performance in
preschool. This is really a timing issue, since last year most of our new
products were lunched in the first two quarters while this year's new launches
are occurring in the third and fourth quarters.
The balance of the decrease was in the Stationery and Activities business
where our emphasis since the beginning of last year has been on margin
improvement. Most of the sales decline was due to lower-margin children's
activity products which have been discontinued under our SKU rationalization
Our gross margins were lower due mainly to rising input costs, the
underutilization of our plant in China and unfavorable product mix due to the
lower sales in the Boys 5-plus category.
Net loss was $3.6 million or 10 cents per share compared to net earnings
of $4.0 million or 12 cents per share in the second quarter of 2007.
For the six months ended June 30, 2008, net loss was $13.2 million or
36 cents per share, compared to a net loss of $19.9 million, or 61 cents per
share in the corresponding 2007 period.
We are also pleased to report a significant development since the closing
of our second quarter financial statements. We have reached an agreement in
principle with our insurers for the recovery of an additional $9.3 million
related to the settlement of lawsuits for magnet ingestion recorded in 2006.
We expect to receive payment shortly and to record this amount in our third
quarter results. This means we have recovered almost the full amount of our
$13.5 million settlement.
Looking ahead, the next two quarters are traditionally the strongest in
our business and our objective is to restore profitability.
An important factor in our success will be our ability to reduce and
offset cost pressures, particularly in China. We are very focused on costs,
efficiency and margin improvement through our Value Enhancement Plan.
Of equal importance, we need to build sales momentum and I believe we are
well positioned to succeed.
- We have great innovation in our Boys category this year, with all of
the new products hitting retail in the third and fourth quarters.
Listings at major retailers are higher than last year.
- MagNext is also starting to get good retail support. The first launch
event took place last Saturday with a building competition at over 500
Toys R US stores across the United States, generating a lot of buzz for
this new brand.
- Our preschool line-up is stronger than ever and on pace for another
- With the launch of the new Boys line-up and MagNext in our key European
markets and other countries later this year International sales will be
In closing, I would like to address some comments to our employees.
The past few weeks have been very challenging. Speculation and rumours
created a cloud over our company and I know it has been a very difficult
period for all the members of our team.
Better days are ahead. The $75 million of new money we have just
received, together with the agreement with our lenders, is a vote of
confidence in our people, our brands and our innovation.
We now have new investors with a long-term outlook. Our founder and
Chairman of the Board is also investing further in the company as part of this
We have great products and we have a plan. Now we also have the financial
resources to turn our business around and restore the value of our company for
the benefit of all stakeholders."
About MEGA Brands
MEGA Brands is a trusted family of leading global brands in construction
toys, games & puzzles, arts & crafts and stationery. They offer engaging
creative experiences for children and families through innovative, well-
designed, affordable and high-quality products that deliver on our Creativity
to the Rescue promise. Visit http://www.megabrands.com for more information.
The MEGA logo, Creativity to the Rescue, Mega Bloks, Rose Art, MagNext
and Board Dudes are trademarks of MEGA Brands Inc. or its affiliates.
All statements in this press release that do not directly and exclusively
relate to historical facts constitute "forward-looking statements". These
statements represent the Corporation's intentions, plans, expectations and
beliefs. In certain instances, these statements require us to make assumptions
and there is significant risk that these assumptions may not be correct.
Furthermore, these statements are subject to risks, uncertainties and other
factors, many of which are beyond the Corporation's control. The Corporation
disclaims any intention or obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise, other than as required by applicable legislation. Readers
are cautioned not to place undue reliance on these forward-looking statements.
More information about the risks that could cause our actual results to
significantly differ from our current expectations can be found in the "Risks
and Uncertainties" section of our 2007 annual MD&A as well as Q1 and Q2 2008
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